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How will Saudi Arabia's economy benefit from lifting the women's driving ban?

24 June marked a momentous occasion for women in Saudi Arabia; they are now legally allowed to drive for the first time. The move is a key part of Crown Prince Mohammed bin Salman’s Vision 2030 initiative, which aims to modernize and diversify the Gulf state’s petro-dependent economy, and make the country more attractive to would-be foreign investors. It also comes amid a wider reformist push, which saw many top officials purged late last year and the Crown Prince recently touring the West in an attempt to boost Saudi Arabia’s standing abroad.

Much has been said about the social significance of letting women behind the wheel, as a step towards greater gender equality and female empowerment. But the economic impact could be no less profound. Not only for specific automobile-related sectors—such as insurance, finance, driving schools and car companies, to name a few—but also at a macroeconomic level. Lifting the driving ban removes a major obstacle to women joining the labor market, and it could boost entrepreneurship and prove to be a boon for the retail and leisure sectors.

However, the reform also poses challenges. The future employment prospects of the roughly 800,000 drivers who work for women who were up until now not permitted to drive themselves are uncertain. The country’s current infrastructure is likely unprepared for a surge in car use, which could lead to greater congestion. And rather than boosting local car production, the reform could lead to a surge in car imports, weakening the country’s external position.

To talk in more detail about the potential effect of women driving on Saudi Arabia’s economy, we spoke to Euromonitor Senior Data Analyst Ana Solovjova and Data Analyst Arturas Ladyga.

Do you see the female labor force participation rate rising going forward? If so, to what level?

We expect the female participation rate to rise from around 17% in 2017 (according to Euromonitor International data) to over 24% by 2030.

What will be the impact of a higher participation rate on the economy?

[A] higher participation rate should translate into a more competitive labor market, higher productivity, increased incomes and a resulting boost to economic growth. Saudi Arabia’s economy should gradually move from oil dependence and become more diversified. The increased share of Saudis in the labor force should translate into more money staying in the economy rather than going abroad with foreign worker remittances.

Which types of jobs are women most likely to fill?

We expect women mostly to fill positions in retail and services sectors. There could also be an increase in small businesses, as the recent reforms allow women to start their own business without the permission of a male guardian.

What are the major barriers to increasing the female participation rate?

The major barriers to female participation in the labor force are the traditions and cultural beliefs that need time to change. Many workplaces in Saudi Arabia are still segregated; companies often have cultural resistance to hiring women; and a male guardian’s permission is required for a woman to work, study or travel. All of this makes entry of women into the workforce a challenge, even though Saudi women are as educated as men (according to Euromonitor International data, 49% of students in higher education in 2017 were women). In addition, as female education is seen as a means of personal fulfilment rather than a way to achieve professional success, most women seek higher education in the arts and humanities, creating a lack of educated workers in technical and scientific fields.

What will the economic impact be of allowing women to drive? How will productivity be affected by the lifting of the driving ban?

Improved mobility should make it easier for women to commute to work, resulting in more women participating in the labor force. This would spur productivity and incomes, resulting in higher economic growth. Money saved on employing drivers for women (mostly foreign expatriates who are a part of the low-skilled unproductive labor force in Saudi Arabia) would stay in the economy, meaning higher real incomes, improving labor productivity and more consumer spending. In addition, car sales should get a short-term boost.

Do you think the lifting of the driving ban will be the first of many reforms designed to boost the participation of women in the Saudi economy, and do you see economic diversification efforts being successful?

We expect the government measures to diversify the economy to a certain extent, although the change should be gradual, as the main challenge will be changing traditional values and cultural beliefs. We see the government taking steps towards its plan through various programs, a lot of which are aimed at helping women enter the workforce and employing their potential (such as removing the ban on driving, supporting self-employment, providing childcare for working women etc.). This shows that women will play an important role in the diversification. We believe more reforms concerning women’s rights should follow in order to exploit their potential and enable them to contribute to the economy.

What will happen to the many people who currently work as drivers for Saudi women, once women are allowed to drive themselves?

As most of the drivers are low-skilled unproductive foreign expatriates, we expect the largest part of them to become redundant over time and either shift to other jobs or be forced to return home.

How will car manufactures be affected by the lifting of the driving ban?

We expect there will be a short-term spike in car sales. Foreign companies will likely try to seize this opportunity by increasing production numbers.

Senior Data Analyst Ana Solovjova joined Euromonitor International in 2010 and is responsible for research and forecasting of annual and monthly/quarterly economic data. Ana holds BSc in Statistics from Vilnius University and MSc in Financial Economics from International School of Management, Vilnius.

Data Analyst Arturas Ladyga joined Euromonitor International in 2016 and is responsible for research and forecasting of annual and monthly/quarterly economic and socio-demographic data. Arturas holds BSc in Economics from Vilnius University and BSc in Banking from Vilnius University of Applied Sciences.

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Disclaimer: The views and opinions expressed in this article are those of the authors and do not necessarily reflect the opinion of FocusEconomics S.L.U. Views, forecasts or estimates are as of the date of the publication and are subject to change without notice. This report may provide addresses of, or contain hyperlinks to, other internet websites. FocusEconomics S.L.U. takes no responsibility for the contents of third party internet websites.

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